With the Bitcoin Halvening almost upon us, we at Bitcoin Maximalist decided to take a look at what the likely outcome is for Bitcoin in the ensuing days, weeks and months.
While nobody can be certain what will happen, we can look at data from Bitcoin’s two previous halvenings to help make an educated guess.
As Mark Twain once said, ‘while history never repeats itself, it certainly does rhyme,’ and that has been so true for many things throughout history.
So with the words of the famous author ringing in our ears, let’s take a look at what could happen to Bitcoin after the halvening.
What Is The Bitcoin Halvening?
Every four years or so, or every 210,000 blocks to be precise, Bitcoin goes through a halvening process in which the supply of newly minted bitcoins, which are created with every block as a reward for the miners, are halved.
When Bitcoin first launched, the block reward was 50 BTC, and then on 28th November 2012 it was halved to 25 BTC, before being halved again to 12.5 BTC at the last halvening on 9th July 2016.
This Halvening event will continue every 210,000 block until the last fraction of Bitcoin is mined into creation, in around the year 2140. This means that every time a halvening takes place the supply is cut by 50%.
Those of you that know about supply and demand will already know that that if the demand remains the same, which it has no reason not to, a cut in supply will trigger a positive effect in the price.
Of course this doesn’t mean the price will double immediately. It might not even have a positive effect straight away, after all there are whales manipulating the market as best they can.
Most miners sell their BTC block reward to pay for electricity costs, and as soon as the halvening takes place they will be earning half the amount of BTC they were before, and so the miners’ profits will fall immediately after.
Mining Stability and Profitablility
If we look back at the 2016 Halvening, we can see that the hashrate dropped from 27.61 TH/s to just below 20 TH/s, but in the ensuing months it rose higher and by the end of the year the hashrate was 60 TH/s. When the hashrate drops or rises, it will also affect the mining profitability.
Once rewards are cut in half this could lead to many miners switching off their rigs. Some simply can’t afford to run at a big loss, and according to Tradeblock, BTC will need to be about $12,500 after the halvening for miners to break even.
Not many would bet against it reaching that price soon, but with the bullish run it’s had, it could also be in for a correction, before we see some more upward momentum.
If many miners switch off, the hashrate will go down. This will lead to a slower block time, but conversely it will also allow the remaining miners to work out the cryptography easier after the difficulty adjustment takes place.
The difficulty adjustment will readjust the difficulty of Bitcoin’s mining algorithm. The easier it is, the less processing, and less electricity it costs to mine a block. And if the price remains quite a bit below $12,500, a readjustment will favour remaining miners like the big mining farms.
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I expect mining profitability to drop immediately after the event, as it did in 2016. Back then it took four months to recover, and this could play out again, but it depends on the price of BTC.
It’s important to note that the more miners that leave the less secure the Bitcoin network will be. It will still be very secure to outside hackers, but it’s definitely better when there are more distributed solo miners everywhere, so I hope for at least $12,500 sooner rather than later.
What About The Bitcoin Price?
The thing everyone wants to know is what will happen to the Bitcoin price after the halvening? How long will it take to increase? Will it increase?
Well let’s look back at the previous halvenings. Back in 2012 the BTC price was at $11, and by April 2013 it reached an ATH of $238 before plummeting. After bottoming at $69 in July, however, it then went on another run reaching a new ATH of $1038 in November 2013, an increase of almost 10,000% gains.
The 2016 halvening saw the price rise a bit beforehand, like we have witnessed this time around, and the day of the halvening it was $576, before reaching an ATH of just under $20,000 on 17th December 2017. Again this was a rocky road up, and took almost 18 months, but with almost 3500% gains, it would have been worth the ride.
It must be noted, however, that as both halvenings did see significant rises afterwards, the second event saw considerably less percentage, and I expect we will see this play out again. If 2012 -13 saw almost 10,000% gains and 2016-17 saw 3500% gains is it unreasonable to expect no more than 1000% gains? Not bad, mind!
If this is to play out, we would see a price of around $100,000 by around the end of 2021. And this is also highlighted in Plan B’s stock to flow ratio, which has followed Bitcoin’s price rise through both halvenings pretty accurately.
Plan B’s BTC Stock to Flow Ratio
Back in March 2019 pseudonymous trader Plan B authored a paper Modelling Bitcoin Value with Scarcity in which he introduced his idea of Bitcoin’s Stock to Flow ratio.
Stock to Flow ratio (S2F) is used to measure the stock of any scarce instrument with the quantity that is added in the future, or as Plan B puts it: ‘Stock is the size of the existing stockpiles or reserves. Flow is the yearly production.’
He uses precious metals as an example for an S2F model and says gold has the highest, which is 62, meaning it would take 62 years to mine the current stock of gold.
Bitcoin, however, has an S2F of 25, and after the halvening it will rise to 50. And with an expected growth in the market cap, according to the S2F, we should see a price of around $100,000 in the ensuing 18 months or so. And as we can see in the image above, the S2F has been very accurate so far.
Plan B is regularly tweeting about the S2F model, and although he insists it’s not certain, he actually doubled down recently, tweeting that he expects ‘a 10x price (order of magnitude, not precise) 1-2 yrs after the halving.’
You can follow Plan B on Twitter: @100trillionUSD
Bitcoin is the best performing asset of the last decade. ANd it has created a whole new industry in virtual mining. This industry is set to endure the biggest shake up in its short time, but one that I believe will only lead to a more robust and secure network.
More institutional investors are getting excited about Bitcoin. It is the only truly scarce asset on the planet that we know with definiteness. This scarcity allows price analysts such as Plan B, and many others it must be said, to confidently predict a huge price rise for Bitcoin.
While nothing is certain, there is nothing like Bitcoin either, and if many respected analysts are true, Bitcoin might not repeat its past, but like Mark Twain said, it will definitely rhyme.
Author: Tommy Limpitlaw